“Good growth potential in Malaysia and the region”

The Malaysian arm of Swiss food and beverage major Nestlé recently celebrated 100 years of its presence in the country. Its products have become household names in Malaysia and elsewhere in the region. Inside Investor met Nestlé Malaysia’s Managing Director, Peter Vogt to look behind the curtains of this success.

Nestlé Malaysia has about 5,700 staff in Malaysia with its main production centres in Klang Valley, Negeri Sembilan and Sarawak. The range of Nestlé products comprises more than 300 products, with MILO, NESCAFÉ and MAGGI being the best selling brands in Malaysia.

“Those are the three top brands, but we are fairly wide spread,” says Vogt. “Other brands and categories also account for up to about five per cent of sales, for example ice cream and milk.”

Export share of sales was about 25 per cent in 2011, volume wise even more than 30 per cent as products exported go for a wholesale price which is lower than domestic prices, Vogt explains.

There are quite large differences in the sales volume of Nestlé brands among the countries in the Southeast Asia region, which has to do with different import regulations.

“You can see great differences in the range of products between, let’s say, Malaysia, Thailand, Indonesia or the Philippines. When Nestlé came here, Malaysia was very open, and we could invest and set up trade points and production facilities easily, while other countries like Indonesia or Thailand were more difficult because they had protection for certain local industry sectors where foreign companies were not allowed,” Vogt says.

“However, nowadays it is starting to become more aligned. We can increasingly export into almost any country, we benefit from minimal tariffs within ASEAN, and there are almost no restrictions anymore,” he adds.

Nestlé was also the first foreign company venturing into the halal food industry in Malaysia as early as in the 1980s. The company set up a halal committee and introduced its Halal Policy, and even eliminated all non-halal food from its internal canteens, with the result that its production is now 100 per cent halal certified. Today, Nestlé Malaysia is the Centre of Excellence for halal within the entire Nestlé group.

“One of the challenges remaining is to find reliable suppliers for halal food at reasonable prices,” Vogt says.

Investment environment

“Malaysia has seen fantastic development over the past years – more than any other Southeast Asian country except for Singapore –, and Nestlé Malaysia was able to benefit from this growth momentum,” Vogt says.

When Nestlé first came to Malaysia in 1912, it was acting as a trading company for the following 50 years, but then started with local production, at first manufacturing condensed milk and later its popular chocolate malt drinking powder MILO and its MAGGI instant noodle products. Today, the production is in full swing, and the Malaysian arm of Nestlé has become a regional product supplier for Southeast Asia within the Nestlé group.

“Malaysia is very well positioned within the region, it is easy to ship products in and out, and there is little bureaucracy,” Vogt explains the benefits of the group’s Malaysian presence.

“And with our halal expertise here, we have a unique opportunity to serve the Middle East as well”

In terms of raw materials, Nestlé Malaysia uses a range of locally-grown products, but they are, however, not always sufficiently available for all the products, especially coffee and cocoa.

“We used to source cocoa from Malaysia, but since many farmers have switched to palm oil, it is not available any more at the volume we need, and we now get it from Indonesia or from other parts of the world,” Vogt says.

“We would like to use more local raw materials, but it is not always possible.”

Two examples for local products processed at Nestlé Malaysia are chilli, which is used for MAGGI chilli sauces, and rice for cereal products.

“We are working together with farmers on these specific raw materials,” Vogt says.

Nestlé’s Contract Farming Programme

In this respect, Nestlé also runs corporate social responsibility programmes on the basis of “shared value” with the community, thus calling it Creating Shared Value (CSV) programmes.

“We were looking for a way to create value for the society in areas where we can create the greatest impact, and we have identified three areas where we can do that, which are nutrition, water and rural development,” Vogt explains.

For example, under the nutrition pillar, Nestlé together with the Nutrition Society of Malaysia has introduced the Nestlé Healthy Kids programme which aims to improve nutrition knowledge and promote healthy lifestyles among school-going children in Malaysia. Secondly, under the water pillar, the company has an initiative called Nestlé Paddy Club, where paddy farmers are trained on how to reduce water usage and greenhouse gas emissions through the commercialisation of the Semi Aerobic Rice Intensification (SARI) method.

Another water-related initiative, called Nestlé Project RiLeaf, is a three-year riverside reforestation initiative aiming to create a landscape where people, nature and agriculture (oil palms) can co-exist harmoniously in their need for water. This initiative, which will see the reforestation of 2,400 hectares of land along the lower Kinabatangan River, aims to create a natural riverine buffer that will help minimise the impact of soil sedimentation and chemical fertiliser run-offs, thereby giving the Kinabatangan River a chance to repair itself over the course of time.

Project RiLeaf, part of Nestlé’s CSV programme

In 2012, Nestlé has committed to plant over 100,000 trees along these riverbanks to mark its 100-year anniversary in Malaysia. Through this project Nestlé will also have an active role in palm oil sustainability by reducing the environmental impact of oil palm plantings through minimisation of chemical fertilisers, as well as ‘back-to-basic’ Good Agricultural Practices.

“We managed to increase our sourcing of coffee beans from local farmers from 40 per cent to 90 per cent in Indonesia, for example. We have a regional sourcing unit in many countries which does the procurement and the quality controls,” Vogt says. “This helps the local community and provides them income, and it ensures quality and traceability for our raw materials.”

Performance

Nestlé Malaysia is listed at the stock exchange in Kuala Lumpur and has developed itself into a darling of analysts, but Vogt remains modest.

“There are so many factors influencing the stock price – the world market, the investment climate, the amount of foreign inflows to Malaysia, or simply if our business is currently en vogue or not. Our objective is to run a profitable business with sustainable growth, and we have been able to show this to our shareholders over many years.” Vogt says.

The ASEAN Economic Community also had a positive effect on Nestlé Malaysia, he added, as trade itself and setting up new production centers or joint ventures in the region has become much easier.

Vogt says the company should grow in a range of seven to ten per cent this year, “not as much as last year with 15 per cent growth, but still reasonable given effects such as the volatile world market and the European debt crisis. There is so much potential in Malaysia and the region which will support our growth.”

Vogt has a long experience in Southeast and East Asia, with more than half of his business life spent in the region since 1981 at different locations such as Sri Lanka, Japan, Hong Kong and others.

The Malaysian arm of Swiss food and beverage major Nestlé recently celebrated 100 years of its presence in the country. Its products have become household names in Malaysia and elsewhere in the region. Inside Investor met Nestlé Malaysia’s Managing Director, Peter Vogt to look behind the curtains of this success.

Nestlé Malaysia has about 5,700 staff in Malaysia with its main production centres in Klang Valley, Negeri Sembilan and Sarawak. The range of Nestlé products comprises more than 300 products, with MILO, NESCAFÉ and MAGGI being the best selling brands in Malaysia.

“Those are the three top brands, but we are fairly wide spread,” says Vogt. “Other brands and categories also account for up to about five per cent of sales, for example ice cream and milk.”

Export share of sales was about 25 per cent in 2011, volume wise even more than 30 per cent as products exported go for a wholesale price which is lower than domestic prices, Vogt explains.

There are quite large differences in the sales volume of Nestlé brands among the countries in the Southeast Asia region, which has to do with different import regulations.

“You can see great differences in the range of products between, let’s say, Malaysia, Thailand, Indonesia or the Philippines. When Nestlé came here, Malaysia was very open, and we could invest and set up trade points and production facilities easily, while other countries like Indonesia or Thailand were more difficult because they had protection for certain local industry sectors where foreign companies were not allowed,” Vogt says.

“However, nowadays it is starting to become more aligned. We can increasingly export into almost any country, we benefit from minimal tariffs within ASEAN, and there are almost no restrictions anymore,” he adds.

Nestlé was also the first foreign company venturing into the halal food industry in Malaysia as early as in the 1980s. The company set up a halal committee and introduced its Halal Policy, and even eliminated all non-halal food from its internal canteens, with the result that its production is now 100 per cent halal certified. Today, Nestlé Malaysia is the Centre of Excellence for halal within the entire Nestlé group.

“One of the challenges remaining is to find reliable suppliers for halal food at reasonable prices,” Vogt says.

Investment environment

“Malaysia has seen fantastic development over the past years – more than any other Southeast Asian country except for Singapore –, and Nestlé Malaysia was able to benefit from this growth momentum,” Vogt says.

When Nestlé first came to Malaysia in 1912, it was acting as a trading company for the following 50 years, but then started with local production, at first manufacturing condensed milk and later its popular chocolate malt drinking powder MILO and its MAGGI instant noodle products. Today, the production is in full swing, and the Malaysian arm of Nestlé has become a regional product supplier for Southeast Asia within the Nestlé group.

“Malaysia is very well positioned within the region, it is easy to ship products in and out, and there is little bureaucracy,” Vogt explains the benefits of the group’s Malaysian presence.

“And with our halal expertise here, we have a unique opportunity to serve the Middle East as well”

In terms of raw materials, Nestlé Malaysia uses a range of locally-grown products, but they are, however, not always sufficiently available for all the products, especially coffee and cocoa.

“We used to source cocoa from Malaysia, but since many farmers have switched to palm oil, it is not available any more at the volume we need, and we now get it from Indonesia or from other parts of the world,” Vogt says.

“We would like to use more local raw materials, but it is not always possible.”

Two examples for local products processed at Nestlé Malaysia are chilli, which is used for MAGGI chilli sauces, and rice for cereal products.

“We are working together with farmers on these specific raw materials,” Vogt says.

Nestlé’s Contract Farming Programme

In this respect, Nestlé also runs corporate social responsibility programmes on the basis of “shared value” with the community, thus calling it Creating Shared Value (CSV) programmes.

“We were looking for a way to create value for the society in areas where we can create the greatest impact, and we have identified three areas where we can do that, which are nutrition, water and rural development,” Vogt explains.

For example, under the nutrition pillar, Nestlé together with the Nutrition Society of Malaysia has introduced the Nestlé Healthy Kids programme which aims to improve nutrition knowledge and promote healthy lifestyles among school-going children in Malaysia. Secondly, under the water pillar, the company has an initiative called Nestlé Paddy Club, where paddy farmers are trained on how to reduce water usage and greenhouse gas emissions through the commercialisation of the Semi Aerobic Rice Intensification (SARI) method.

Another water-related initiative, called Nestlé Project RiLeaf, is a three-year riverside reforestation initiative aiming to create a landscape where people, nature and agriculture (oil palms) can co-exist harmoniously in their need for water. This initiative, which will see the reforestation of 2,400 hectares of land along the lower Kinabatangan River, aims to create a natural riverine buffer that will help minimise the impact of soil sedimentation and chemical fertiliser run-offs, thereby giving the Kinabatangan River a chance to repair itself over the course of time.

Project RiLeaf, part of Nestlé’s CSV programme

In 2012, Nestlé has committed to plant over 100,000 trees along these riverbanks to mark its 100-year anniversary in Malaysia. Through this project Nestlé will also have an active role in palm oil sustainability by reducing the environmental impact of oil palm plantings through minimisation of chemical fertilisers, as well as ‘back-to-basic’ Good Agricultural Practices.

“We managed to increase our sourcing of coffee beans from local farmers from 40 per cent to 90 per cent in Indonesia, for example. We have a regional sourcing unit in many countries which does the procurement and the quality controls,” Vogt says. “This helps the local community and provides them income, and it ensures quality and traceability for our raw materials.”

Performance

Nestlé Malaysia is listed at the stock exchange in Kuala Lumpur and has developed itself into a darling of analysts, but Vogt remains modest.

“There are so many factors influencing the stock price – the world market, the investment climate, the amount of foreign inflows to Malaysia, or simply if our business is currently en vogue or not. Our objective is to run a profitable business with sustainable growth, and we have been able to show this to our shareholders over many years.” Vogt says.

The ASEAN Economic Community also had a positive effect on Nestlé Malaysia, he added, as trade itself and setting up new production centers or joint ventures in the region has become much easier.

Vogt says the company should grow in a range of seven to ten per cent this year, “not as much as last year with 15 per cent growth, but still reasonable given effects such as the volatile world market and the European debt crisis. There is so much potential in Malaysia and the region which will support our growth.”

Vogt has a long experience in Southeast and East Asia, with more than half of his business life spent in the region since 1981 at different locations such as Sri Lanka, Japan, Hong Kong and others.